My Personal Finance Journey

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Why You Shouldn't Leave The Market Now

Contributed by mm | August 18, 2007 5:31 PM PST

Last week I shared some frustration seeing the sharp decline of portfolio value. One commentator asked a good question: "... how would you really feel if you lose 10%, 20% or even 30% in the market in a span of months? How about 50%?"

Fair question. In the midst of this market turmoil, we all should have the same gut check. Will you be comfortable with another wave of sudden and significant deterioraton of personal wealth? Or should you leave the market for the peace of mind?

To this end, BusinessWeek's recent interview with John Bogle, founder of the Vanguard Group, offers some real insight. Here are some quotes:

On Why One Shouldn't Leave the Market Now

Even if I was pretty confident that the decline will continue—and I think it's more likely than not—you've not only got to get out right, you've also got to get in right. You must be right twice. So if you get out now, and the market goes way down another 15 or 20%, which is quite possible, they will be so scared they won't get in. So I'm a stay-the-course person.

On How About Converting Everything to CD for Dependable Income

First of all, you'll probably end up paying a lot of capital gains taxes. And you might be right.

But on the other hand, what are you going to do next? A good bit of this decline has occurred. If you could get out and get into CDs when the market was 10% higher than it is now, that would have been a nice thing to have done. But people weren't thinking that way then. You're always bullish at the highs and bearish on the way down. So you're buying at the highs and selling at the lows. What sense does that make?

On Whether Market Will Drop Another 15%

The market takes on a certain momentum and it could happen. I didn't say it would happen. I said it could happen. In a stock market, believe me, anything can happen! Confidence changes. You measure confidence by the price-to-earnings multiple and it's probably gone from 18 to 16 here, down about 10%. The long-term average is around 15.

On How The Recent Meltdown Compares To 1987

1987 was nothing, really. Think about it. In a short period—one day—it was pretty much all over. The market went down a little less than 25%. But by the end of the year, it was up 3%. 1987 was an up year in the market. I don't think this one will be. But if people are saying that it could be like 1987, they should pray that it is!

This Post Has Received 4 Comments. Share Your Opinions Too. Commented on August 18, 2007

For myself personally, since I am young I don't think a decrease of 50% is the end of the world... in fact it allows me to average down on the price I've been paying for some of these companies and get in at great prices on other companies...

But if I was planning on retiring in a month, I wouldn't be very impressed...

Joe Ponzio's F Wall Street Commented on August 19, 2007

Investors worried about the markets probably hold too many investments. Great companies grow regardless of the market conditions - and their stock prices follow them. The markets can go down and great businesses (and their stocks) will continue to grow.

The market moves in natural cycles - oversold to overbought - and we should use these regular cycles to profit rather than worry.

I say, "Let them crash." When the gamblers sell stocks, they sell great businesses too. It gives us the opportunity to buy wonderful companies on sale.

The markets always "come back." They have to. If we find ourselves in a situation where they don't come back, it means that our economy and our country have gone to such crap that our portfolios and currency won't be worth the paper their printed on.

If you are retiring in a month, you still have thirty or so years left to invest for growth. Secure your income. Then, get excited.

The Dividend Guy Commented on August 19, 2007

Good article. I think many people forget that investing is a long term gain. Markets such as the one we have had for many years now condition investors to beleive that investing is easy as it tends to go up very quickly after sell-offs. This is not always the case. Investing is a long term game!!

The Dividend Guy

Andy Commented on August 30, 2007

It always seems to affect me more when my portfolio goes down rather than up! I think the best thing is to sit back and wait it out. Fundamentals of the worldwide market are good. The US market is still number 1, but not as dominant as it was in 87.


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